The Potential for CPPAs in Offshore Wind Energy in Denmark

Abstract

The phasing out of government subsidies and the increasing focus on renewable energy have prompted this thesis to assess the potential for CPPAs in the Danish offshore wind energy market. The study aims to understand market characteristics to determine whether the drivers are greater than the barriers. Firstly, a market analysis has been conducted with a focus on the individual factors that may affect market penetration. Secondly, a comprehensive financial analysis has been conducted, based on a self-developed financial model, utilizing the DCF method build upon three scenarios: low, base and high. This financial model is highly dynamic, enabling adjustments of input. The model is used to value the Thor offshore wind farm, which serves as a case study, as well as to estimate the CPPA pricing mechanism, through the break-even method. Additionally, a sensitivity analysis was conducted to mitigate uncertainties and enhance the generalizability of the findings, complemented by two Monte Carlo simulation approaches.

In the market analysis, several drivers were identified, such as the phasing out of government subsidies, the possibility of forming consortia, and the increasing sustainability requirements for financial reporting. In addition, the two primary incentives for offtakers are the ability to acquire green certificates and hedge against rising electricity prices. The identified barriers included the complexity of the concept and the relatively small number of Danish energy-intensive companies. The financial analysis found that electricity price projections have a significant influence on CPPA prices, with break-even CPPA prices ranging from DKK 256-696/MWh based on the three sce-narios. It is essential for this price to be above the LCOE calculated at DKK 453 for it to be a favorable project. Based on this, it is concluded that the most realistic range of CPPA prices for the current market is DKK 456-527/MWh. Finally, risk factors were identified through a risk man-agement discussion such as volume risk, future electricity prices, and counterparty risk.

The thesis finds that the most significant market factors influencing the potential for CPPAs are electricity price projections, pricing mechanisms, offtaker demand and incentives.